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When Valdis Dombrovskis was named Lativia’s Prime Minister-designate last week, one of the first things he said publicly was that his country was on the brink of bankruptcy. The stark warning came just days after the previous coalition had collapsed.

Last year Latvia had to go cap-in-hand to the IMF and EU for a financial lifeline. They won 7.5 billion euros in loans, on the condition of carrying out heavy budget and spending cuts. They still have to be agreed. But the new government has not even been formed yet. Latvia was an EU “tiger economy” with a record-breaking 12 per cent growth rate. This year there will be contraction, and the forecast has been more than doubled, to a whopping 12 per cent. Latvia’s economic woes have already sparked social unrest. In January, demonstrations calling for the government to resign descended into rioting. The following month, the country’s farmers demanded more support to see-out the economic crisis. Latvia’s problems have set nerves jangling throughout the whole of eastern Europe.

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